Do I really require an Investment Advisor

We do those thing ourselves which we think we are capable of but we leave some job to be well take care by some other either they are more capable ,better than us in terms knowledge skill or we are short of time . 

Investment is a subject which is off late many people think they can do as much better on their own as information are readily available through web.

Its very true that information are easily available but deciphering the information is more important before taking investment decision. If we have to take decision on our own money we become either biased or prejudiced , plagued by greed or fear , induced by what most are doing so it has been seen that our investment decision making behaviour is not so prudent or rational what it should be .

Few recent examples I can quote is mad rush for Gold investment or stopping SIP investment when markets were down . Lets analyse both decision making behaviour .

Yes Gold has given phenomenal return throughout last 20 years . Last 20 years return has been x% , 10 years – y 5, 5 years – z %  but last 2-3 years it has given almost 100% return .  Now how it has happened suddenly that investors are willing to buy at many more times than what they were going for earlier. Simple with equity cycle well beaten , rising inflation , gloomy global economic scenario led to this high rise. But all those who are buying today are they sure that these factors will remain say 3 years from now .So are we going to see a mad rush for liquidation of gold and then many will weap over losses .

Again SIP basic principal is NOT TO TIME the market and DO RUPPEE COST AVERAGING for a long time till one can invest . Its like building a corpus for retirement or for meeting very distant financial goal. If we buy same asset at lower price you buy more quantity and with price recovery will gain more . But most investors withdrew because their recent some investment where showing negative return  . Rather than being governed by rational  thought they were governed by emotional thought . How come long term investment plan becomes something of few months ? When I had thought of not timing the market , I have timed it by stopping SIP investment . What was a good opportunity for a big gain as many months of low NAVs if followed by some months of high NAV just before withdrawal you gain a lot .  To illustrate the above example let us see 3 situation (1) NAV being volatile due to market being volatile (2) NAV just moving up and up (3) NAV going down and down and then moves up , volatile and then is at lower value than what was when first time invested .

		Scenerio 1				Scenerio 2				Scenerio 3
	SIP		Lumpsum		SIP		Lumpsum		SIP		Lumpsum
Amount	10000		100000		10000		100000		10000		100000
Period	NAV	Units	NAV	Units			NAV	Units			NAV	Units
1	40	250	40	2500	40	250	40	2500	40	250	40	2500
2	38	263.16			43	232.56			37	270.27
3	34	294.12			46	217.39			36	277.78
4	31	322.58			48	208.33			33	303.03
5	33	303.03			52	192.31			32	312.5
6	29	344.83			54	185.19			31	322.58
7	26	384.62			56	178.57			28	357.14
8	28	357.14			59	169.49			25	400
9	25	400			61	163.93			21	476.19
10	29	344.83			62	161.29			19	526.32
11	26	384.62			65	153.85			17	588.24
12	29	344.83			67	149.25			14	714.29
13	33	303.03			68	147.06			16	625
14	28	357.14			70	142.86			18	555.56
15	34	294.12			72	138.89			15	500
16	27	370.37			74	135.14			20	416.67
17	24	416.67			75	133.33			24	400
18	28	357.14			76	131.58			25	370.37
19	31	322.58			78	128.21			27	333.33
20	35	285.71			81	123.46			30	312.5
21	37	270.27			82	121.95			32	294.12
22	39	256.41			84	119.05			34	294.12
Tot Units		7227.2				3583.7				8900
Tot Amt Recd on Rep	40	289088		100000	85	304612		212500	35	311500		87500
Tot Amt Invested		220000		100000		220000		100000		220000		100000
Profit / Loss		69088		0		84612		112500		91500		-12500
Money grew by times		1.314		1		1.3846		2.125		1.4159		0.875

Interesting finding is that in even if NAV grew more than double in 2^nd case still when redeemed money grew lesser than case 3 where in fact the end NAV is lesser than starting NAV . Also even when no return in case of lumpsum investment in case 1 still money grew by 1.314 times when done through SIP .

This is one of the many examples which can be given to shown that investors might think that they have taken right decision but may not be the case.

So here comes role of right investment advisors that guides an investors what to do and what not do in different market scenario . Investment is not all about return in a linear direction but it is also about taking decision keeping objective and past trend in  mind , analyse the present trend, performance , take corrective action only when required as it could be misleading also as shown above and above all is in line with what an investor really wants . All this can be done only when you have an well informed investment advisor with you .

How frequent should you evaluate your portfolio?

How frequent should you evaluate your portfolio?

All of us have a tendency to keep finding what is the current valuation of my total investment i.e investment portfolio. We have seen lots of highs and lows in last 5 years. Some who got into equity investments just when the market started climbing upwards have made good returns and some who  after seeing these guys making money entered at near peak levels (late 2007) seem to have suffered notional loss.

In recent times talking of investment in equity funds is a big NO NO by most as many have burnt their fingers in last few years. Most of the investment in last year or so has come in debt fund particularly in FMPs and short term funds and reasons are simple – rising interest rate and bad return from equity fund.

Investors should always remember return from any investment product is a function of time. No asset class is bad if kept for long time. In short duration there could be loss or gain in any asset class be it debt or equity or real estate or gold but in long term ( > 3 years onwards in today’s scenario ) there will be always gain from all asset class , the only loss is OPPORTUNITY LOSS .

I would like to emphasise this Opportunity loss here. It could be reaction like “Oh Why did I not invest when blue chips were down, stocks were trading at low valuation and equity MF NAV was low. If I had invested I would have made 30% per annum “.

We have seen many such reaction of investors in past. The reason for talking this is investors today are in dilemma what to do when they see that their equity investment is not moving up and debt investment giving good return . So what should be the approach for evaluating the portfolio.

First look at your liquidity need in time duration i.e 3 month, 6 month, 1 year ……. i.e do you require money whatever the situation may be . If yes then don’t risk your money for fresh equity investment if time horizon is less than 3 years as of today.

While evaluating your portfolio please see the laggards i.e have you invested in any asset class or product whose performance in long term is consistently worse than benchmark or category average. If yes then you need to seriously consider of switching for better product. If the performance is bad in short term then there is need to look more from macro perspective i.e situation today in economy, sector etc. If it is a dark cloud hovering for only some time then you do not need to panic but keep patience.

Investment Portfolio have to examine in terms of liquidity need and macro factors ( in short term ) but in long term it is very clear that there are few assets which have always given better return than the other asset .

Once initially you have invested you must have thought that till what time you want that money to stay invested. This time duration was the main factor in choosing asset and product class which must have been considering historical return and risk vs return on time scale.

Yes frequent review is required to see whether chosen investment product is doing better or worse on comparative scale within its category or not. If there is some concern then need to be probed for reasons. If it is momentary then again one need to have patience but if the reasons are new and will be having long lasting impact then need for consideration of switch but such occurrence are very rare .

One very serious request to all the readers of this article is that please do not keep tracking NAV on a daily basis. Do review but once a month. Any investment done keeping long term horizon and with due evaluation of risk-return aspects need not be changed for reasons which are affecting performance in short term.

The best course for investment is always, if you have lumpsum money then either invest in Liquid fund and through systematic transfer plan keep investing a fixed part every month in good performing equity fund. So your time risk is diversified. If you have no intention to utilise that money in less than 3 – 5 years or have another resource where you can look in  and have conviction and confidence in equity then can invest in one go in some good performing equity funds with proven record of performance in long term . If there is some surplus generated on regular basis then select some good 8-12 equity funds and keep investing some portion in them regularly. If want to force investment discipline then start as low as Rs 500 or Rs 1000 and keep investing till you can in select good equity funds . “DON’T LOOK AT NAV ON DAILY BASIS ONCE DECIDED FOR INVESTMENT IN LONG TERM. “

To summarise--  (1) Invest keeping in mind your liquidity requirement (2) Remember in short term it is either loss or gain but in long term it is gain and opportunity loss (3) All asset class do well in long term (3) Whenever you invest, first evaluate risk-return aspect in short term / long term (4) Once invested have faith and conviction in your investment decision and don’t get influenced by short term factors until  and unless it has long term implications. (5) Do review but on monthly or quarterly basis.

SIP for You or You for SIP

SIP for You or You for SIP ?

Confused ?

Ask yourself why you invest. It is because you require it or is it because you are seeing everyone doing so let me also do it. The first one is called YOUR OWN NEED and the second one is called HERD MENTALITY. Definitely we invest because we require the saved amount for ourselves at some stage of life to meet any of our requirements. Investment is must for most so as to have some money in hand when required. Now when should one invest ? The answer to this is there is no right or wrong time for investment. Investment should be a continuous exercise. Just as spending is a regular exercise so be investment because somewhere expenses rises and some defined expenses have to be taken care by accumulating wealth through investment over a period of time . There is a famous proverb in hindi “boond boond se ghada bharta hai“ and SIP works exactly on this principal.

SIP or Systematic Investment Plan is something an investor has decided to invest regularly/monthly a small amount in a particular scheme. The basic essence of doing SIP is to slowly, regularly built wealth. Two things are must for a good result from SIP investments no timing of market i.e all time is good for investment and there is no time bar for continuous investment, in other words keep doing investment through SIP till you can afford that long investment horizon. SIP is the best route for wealth creation, wealth accumulation.

Investors should understand two things (1) Notional Return and Real Return (2) Return coming from Lumpsum investment and through SIP.

Notional return is one which is in only in books, which has actually not occurred. You are just calculating on the basis of NAV and you are still invested in the fund, whereas real return is gain or loss incurred when actually exited from an investment. So notional return has no meaning except for academic interest or creating physiological impact. You are neither gaining nor losing because you are still invested. So what matters is the real return which is actual gain or loss when you exit from the fund.

If one has invested a lumpsum then for that investor there are only two reference points for calculating return, the NAV at which he buys and the NAV at which he sells. But in a SIP there are multiple reference points and many yet to come so does it make sense for judging over all return where the game is still on. How can you start getting affected by return by taking few reference points when they are yet to be completed.

But to our dismay we have seen many SIP’s being closed when market went down recently. Reasons for the same are investors were tracking their investment every day and they noticed that their 1 year or 2 year investment showed negative returns. Well if in the first place you decided not to time the market and be in the market for very long period then why suddenly change your mind? In fact if your objective was wealth creation and you were getting equity fund at a lower NAV because market had gone down you should have been happy rather than getting tense.

Now since I had intended to go for long term then why I withdrew when it was most advantageous situation for me. In fact I feel if I have planned to do SIP for say 10 years i.e have to make investment 120 times more I get units at lower NAV it is good because my overall returns will shoot up. But it is very sad that investor generally tends to forget that their last intended time of getting out of the fund is far away and they get influenced by low NAV.

It is a very common error which is committed by most of the investors in recent times that they have discontinued SIP just because return of last 2 years has gone negative. Now just think you withdrew SIP investments when market was in 14000- 15000 sensex level . Now it is above 17000 level so if you had continued investing in SIP you would have gained or not ? Investor should see return from equity investment and particularly from SIP as range of hills with many slopes and heights. If there is a downward slope from the top then there lies further slope which goes upward. It’s all how you look at it. If from top I see I have fallen, going ahead I also see another rise and gain.

The investor which has invested through SIP should have a different mindset than the investor who has invested in lumpsum as in lumpsum there could be either gain or loss but in SIP if we take any two reference points then there will be only gain or loss but if we take many number of two reference points there can be many gains and many loss but in long run it evens out and there is only gain as equity till date has always given positive returns if we take 3 years, 5 years, 7 years, 10 years , 15 years ……… return. Also there has been a clear observation that longer the duration of SIP the higher the returns.

The same can be testified if we look at some of the schemes SIP returns.

Name of the scheme	SIP Amount	No of years	Amount
Franklin India Bluechip Fund - Growth	2000	15	29,28,267
Franklin India Prima Plus - Growth	2000	15	27,51,611
Reliance Vision Fund - Growth	2000	15	28,48,004
Reliance Growth Fund - Growth	1500	15	29,60,830
HDFC Equity Fund - Growth	1500	15	27,25,403
HDFC Top 200 Fund - Growth	1500	15	18,82,757

So I believe my valued investors by now must have understood that SIP is made for you and you are not made for SIP.